tv [untitled] February 8, 2012 8:00pm-8:30pm EST
agree with the macro concern that a rate reduction overall is certainly more beneficial in the long term. and certainly support that. i would like to come back to trying to balance this out inside the umbrella of strategy. i work with many clients in subsequent years, they were very reluctant due to market cycles based on investment and technology, other systems that would be helpful to them. this is particularly smaller businesses, under $100 million manufacturing firm, but surprisingly a number of my clients in the fortune 500 had that same experience on a reluctance based on market cycle, particularly for shareholder expectations in the
long term. and i guess the question i would like to understand is how we address this issue of depreciation from a strategic standpoint within the long term, bringing the rates down is certainly important to me i guess considering the long term, i would like to hear thoughts from all of you, but specifically from professor hanlin and mr. heenan. if we were able to adjust depreciation schedules within the overall tax strategy that would provide the ability, knowing the tax liability would be the same for your company in the longer term, but to do it on a more proportional basis. when there's a great year and the well is full of watt e, the idea of let's go ahead and make this capital investment to be leaned up and red dwi for more
difficult times, being able to control costs. you've got the ability to invest in those technologies, knowing that there will be abdown cycle eventually. i'm thinking heavy manufacturing, the energy industry, areas that i saw that were very reluctant to get involved and make these vems. or say maybe if you have a great year, a small $50 million company could invest in $8,000 machine tools and write them off in one year, but know they're going to take that but the idea longer term is those jobs are protected and they become more competitive. where this gets particularly challenging to me is looking at international manufacturing, contrary to a lot of politics in washington, much of it is very robust and strong and competitive, but still reluctant with many of the tier one and tier two producers to make these decisions. and if they could reduce it down, say, into a two, four, seven-year schedule, if they want to go to the longer-term schedules, that's perfectly
acceptable. but how would that work inside the idea of rate reduction if we could manage that to keep these things revenue neutral. >> if we could bring bonus in and out to encourage bonus investment. >> i'm talking about allowing the manufacturing company ready to make these capital investments. i'm not talking about all asset class. i think that would be a grave error and we would totally stir up the tax system. but areas that are very critical to our strategic manufacturing, economically. the employer would simply have the ability to pick the schedule -- or the company would pick the schedule that's more advantageous to them. rather than have boom and bust cycles on policy, have that fit into the overall tax strategy so
in a good year in one sector, you can make the investment that maybe a fedex might not make based on what they're doing. or vice versa. >> we have fairly large capital projects. these could take a couple of years before you finally sign somebody up and you sell and implement it. bonuses aren't something that's been advantageous for us. coming and going, they're not in the law today.
we have to make sure the law in two or three years is going to be the same as it is today. we're not going to model that. when we sit around the table, we're not going to say well, they may re-up bonus a couple of years. let's throw that in our decision. >> so you're looking for predictability. >> we're looking for predictability in our code and it's in our sort of model today. bonus is not. is. >> thank you, mr. chairman. and thank you all of you for coming down and giving us this system. -- testimony. one of you congratulated chairman camp for moving in this direction. and if he were here, i would congratulate him, too. what we are doing is keeping the idea alye. but it just seems to me with the outstanding representation from
some of the nations and the world's most successful businesses that while chairman camp has opened the door for reform, that it's going to be your responsibility to put your foot in that open door and don't let it close. it's no profile in courage for all of us to say reduce the corporate rates and expand the base. but not my base. i came down here as a tax reformer. and believed me, earned income tax credit, low income housing credit, whatever we can do for our veterans. whatever it is, we have allowed probably $500 million to get involved in what they call extenders. anyone here who doesn't know
what the extenders are? or those tax provisions that expire? or at least we say they're going to expire. and all they want to do is to get them in the code. someone said seeing tax law made is like seeing sausage made. you just don't want to see it. now, what i'm suggesting is that if this outstanding group of corporations that you have listed, how often do you meet? this group, what's the name? >> reducing america -- >> yes. because our problem here is the lobbyists represent the best tax interests of their clients. reform is not on their agenda. if they came back to you vice presidents and presidents and said what a great talk i had with ways and means people,
we'll have to give up depreciation and a lot of other things but wow would this be a fairer system, he would get fired. his job is to broaden the gap or to create one. temporarily, but never allow it to sunset. so what we do need are people that have the credibility that you guys have, and ladies, to get in a room and to find out what we can get away with as elected officials. nobody is talking about getting rid of charitable organizations and churches for exemptions. there's a lot of money there. and of course, if you talked about mortgages, you've got to narrow the amount of people -- the number of deductions that are in there. who's going to bite the bullet to get rid of them in order to have a fairer system? i'm asking fedex and time warn
er what can you do to get people in a room and say we're not agreeing to anything or this will be the impact economically? how can we take this the next step? because we need -- i was here in 1986. we had tip o'neill. all he knew was how to get along with republicans. why? i don't know. but that was the way tip worked. we had ronald reagan and he was blinded by party lines. and they were able -- we were able to get what we thought at that time was reform. it's difficult to talk about reform. it's a question of ox is being bored. it doesn't surprise me if you're paying 35% tax. what does surprise me is you're not outraged.
outraged. don't thank us. what are you going to do about it. because you've got a great argument in terms of equity, but nobody is going to be out front saying that we've got to get rid of some of the darn things that we put in the code. some of which we've forgotten. and when we extend them, it's the whole package. and you can see some of the things that my colleagues are talking about just to pay for the holiday tax package. they've got imagination. but it's not good. so mr. chairman, i was trying to negotiate for you an extended time period. i know i wasn't persuasive. but could one of you just say what you could do in terms of taking this to the next step? >> absolutely.
i would like to commend you and the efforts you put forward in this whole effort. >> the gentleman's time has expired. >> maybe you could respond to our letter. >> can you allow our guest -- >> mr. noonan has five minutes. >> i give the balance of my t e time. >> thank you. one former chairman mentioned that nobody is talking about getting rid of the charitable contribution that actually in the prior three budgets, the president has capped charitable contributions to 28%. just want to remind the gentleman from new york regarding the president's last three budgets and what he proposed. obviously it wasn't adopted by the congress, but there is one person in washington who has talked about the issue in the context of reducing that charitable contribution. and i wish mr. lewis were here, because he and i as the
chairmanmen have the caucus have both opposed that as co-chairmen of the philanthropy caucus. those of you who are vice presidents for companies, dealing with tax issues, can you tell me who your major competitor is and how the current tax code causes you to make decisions based upon investments? starting to my left. >> the united states postal service. they don't pay my tax. ups, their tax profile is very sloor to ours. and we have several international competitors, dhl, at&t and others. as an example, dhl's reported epr's effective tax rate over the last 10 years have hovered around 20%, vis-a-vis our 36%, 37%. that's why i say us paying at what we are right now is a real
competitive disadvantage, because they have additional after-tax funds that they can continue to reinvest in their global networks they don't have. >> and they compete with you here and abroad? >> yes, sir. >> our main competitors are at&t and verizon, as well as the satellite companies, directv and dish. and obviously we compete globally in the capital markets for investments. and farce the impact on the communications industry, i think verizon and at&t are much more similar to us than maybe even the satellite companies, although the difference is that large. we're all capital intensive companies. for us, tax reform is more about getting the economy stabilize and growing, because that's where our growth is going to come from. >> even though you don't compete -- i'm trying to get more of an answer from you. i don't want to put words in
your mouth. maybe i can tell you what i'm trying to do and then you can answer. even though you don't have a quote, unquote, international competitor, you're competing internationally for capital. >> yes. >> the tax code impacts you how with respect to that? >> i think if you look at some of the analysis and research that has been done, companies with lower effective tax rates do have an advantage when it comes to garnering investment from the global capital markets. so from our vantage point, that clearly is an issue. also from, you know, just the pe of raising dpal and also being able to invest more and grow our business, an economy that is more robust is going to help us on both fronts. >> so because capital can go anywhere in the world, it's going to go where it -- >> it's going to go where they believe the higher rest return at. >> so even though you're an
american company, more jobs in ohio, to uh very much. you're a domestic company, domestic jobs, that international competition in terms of tax rate is very important to the growth of your business in america? >> it is. and it's also very important to our customers. our highest growth area is in the commercial services arena. and our customers, small, medium and large, they do compete intensively in the global markets. and our success is tied to their success. >> thank you. >> good morning. i think in the u.s., we have -- you know, we're competing against air products, u.s. based multinational, outside of the u.s., we have french and german companies. and when we look at the u.s., we're all competing at the same
rate. but as you said, capital can move. when we look at foreign prgts, you know, what we really want. and i think we have today, maybe not perfectly, is to have a level playing field on the tax rates offshore. if we're looking at a product in mexico, france or germany, we want to be on a level playing field so we can win our share of those projects. we have our r&d in new york. that offshore growth comes back here to the u.s. so it's important for us to remain competitive on offshore projects. >> thank you all for being here today. first, appreciate the chairman holding this hearing. secondly, i think the draft proposal on territorial and lower rates the way it was laid out has been very positive and helpful movement towards
fundamental tax reform. all the witnesses today have really opened up a lot of questions on how we move forward and doing it with the most pro growth impact, weighing both the book and the accounting tax-type requirements you're under. both of you rightly make the case that in addition to lowering the corporate tax rate that there is is need for capital investment incentives. and you're willing to put erg on the table, but recognize looking at the last 40 or 50 years, the single strongest correlating driver for new jobs, you know, is private business investment. you're building buildings, buying software, new equipment
and technology. so my goal is at the end of the day i want the lowest possible tax rate, but i want the strongest possible pro growth tax goad. one that allows us to have the largest economy in the world, until china catches us or someone else. but for the next 100 years. so i want to ask, as you're willing to put everything on the table, which i think is very important, what are the strongest -- looking at the cost of capital in investment, what is the strongest capital investment incentive that ought to be considered to remain in the tax code. >> from our perspective, i think 100% expensing. permanent -- on a permanent basis would be extremely strong. investment tax credit can be draft crafted in a similar
manner. there were some issues with that in the past. but expensing works quite well. it doesn't address the financial issues talked about earlier, but it stel affects the cash flow and has a tremendous impact on our environment and other companies like us. >> 100% expensing would be the top? >> yes, sir. >> for us, the biggest drive to investment is a growing economy. i think if we can get there, all other problems will eventually improve and rectify and remedy. immediate short-term policy, bonus expensing is tremendously important right now. we're being hit by the are everse sal of prior year benefits from bonus depreciat n depreciation, just as our economy is struggling to pick up a lit bit of momentum.
now is not the time to have those reversals take full effect. >> sure. >> i think overall if you can get to a lower rate, it will encourage growth and more than make up for the loss of some of the tax incentives, including even accelerated depreciation. but that requires us getting to a much more meaningful lower rate. 25%. >> knowing what with ecan get to 28%, the final three points lab possible discussion. >> can i ask the other witnesses your thoughts on the pro growth tax code? >> yeah, i just did a little bit different than the pro file. >> if it was a permanent fixture in the tax code, we would put
that into our decision. >> which is what we're seeking, permanent tax provisions rather than temporary ones. >> but i think we recognize that that would be extraordinarily expensive and we need to -- we need revenues. i think the current provision that's like that is accelerated depreciation. that would be the one that practically speaking you might be able to keep if you go to a permanent bonus structure, you're going to have it very closely -- we would be happy to take it, but i think it would cost too much for the country. >> yeah. >> when analysts look at permanent bonus depreciation, or permanent 100% first-year write off, they argue that you would also need to repeal the interest deduction in order to prevent negative effective tax rates. >> mr. mcder mo the is
recognized. >> i want the audiences and witnesses to recognize this is a day we all gathered here with silver faces for holding pictures. we are all for tax reform. everybody in this room is for tax reform. we're on the ways and means committee. we do tax reform, right? now mr. johnson has asked you have you studied how low you can get the tax rate if you eliminated tax expenditures, and all the witnesses said they haven't. so i just want to enter into the record the study from joint tax dated 27 october 2011 which talks about what you really have to do if you're serious here.
now that study suggests that roughly half the cost of a seven-point reduction, that is from 35 down to 28 would come from the repeal of depleted, accelerated depreciation. yet all the companies have said this is very important. don't take away our accelerated depreciation. and you want to retain it. that means you can only finance about a 3 1/2% reduction. this report says you're going to have to come up with $960 billion, $506 billion comes from depreciation acceleration. i wonder what you actually would support. because as mr. rangel suggested, tax reform in 19860 cured after
ronald reagan came in in 1981 and played golf with tip o'neill for five years. and it was before the global economy had really taken hold. so we're talking about a new world that we're trying to reform rather than the one they were reforming in 1980. give me your views of what we should do? what are the things that are most important that you're willing to give up or shift off on to somebody else. yes? >> congressman mcdermott, we looked at the joint committee on taxation's revenue estimate from october, and we looked at the provisions that they estimated and scored in terms of base broadening. they represented 2$209 billion
out of the total tax expendit e expenditurexpenditur expenditures. so it was only 40% that they actually scored. there was another $185 billion of corporate tax expenditures that they had not yet estimated. so i'm actually relatively optimistic that when you really take a hard look, that you can get down to 28% and even possibly 25%. i look at the 1986 tax reform act, and i look at the base broadening that occurred from tax expenditures. it was only 60% of the base broadening. 40% of the corporate base broadening was not from tax expenditures. i think the tax treasury and elsewhere, if they look hard will be able to find additional base broadeners beyond just the tax expenditure list.
>> do you have that list? i mean, the $195 billion you talk about. can you tell me what are the pieces in there that we would have to get rid of? >> i don't have those with me, but we've gone through the entire gtc estimating list and they have rots of provisions that were not yet estimated and we've linked that to the tax expenditure list. and 40% of the estimated tax expenditures have not yet been estimated. >> i think i would appreciate -- everybody on the committee would appreciate if you give us what your estimate is. anybody else have any ideas how to do this? >> i would just like to echo the comments, you know, sort of a quick fix answer is difficult to give. i do think we have to look line by line at each of the expenditures and weigh it
against tax rate reduction. and certain expenditures are going to be more important to tax growth. i think everything should be on the table and we have to have a very serious conversation about which ones we want to take out and which ones we want to keep. >> thank you much chairman. i want to try to get three quick questions in. no speeches. i'll just start with the questions. focused on the -- trying to think of these questions in terms of jobs. we all want tax reform. and we want to energize the economy. but we want to it to equal, of course, jobs here in the united states. they have the effect of providing preferential treatment in terms of particular business
behaviors or particular sectors of the economy. do you agree that tax reform should address these kinds of distortions? >> i think reform should have the 2k3w0e8 of making tax pro growth, simpler and fairer. and in 2010. and part of the house expiring provisions included a provision that was not ultimately enacted that required the joint committee on taxation to look at the expiring tax provisions and look at the analysis in terms of the cost benefit analysis, who the beneficiaries were, and i think it's that type of analysis that really is important in terms of looking at all the provisions that congress has previously enacted. some of them, you know, very
well worth keeping as part of tax reform. others, if a thorough analysis has been done, may be outdated and should be limited. >> okay, thank you. >> i think the best approach to take is they are willing to put these things on the table. they would rather not but they're willing to do it if it will get them to a lore rate. we conducted a survey of tax executives and asked them point blank, is the u.s. corporate tax rate hinder your competitiveness and almost 80% of them said yes, unequivocally. so i think these things are very important. i think a stable tax structure that's predictable is the best way to go. >> a so a review of pro growth